1

Douglas H. BrooksAsian Development Bank

Jakarta, 7 November 2010

2

Special Chapter - Key messages

• The rise of Asia’s middle class

– Middle class expanding rapidly, but still vulnerable• Grew to 56% of population in 2008 from 21% in 1990

• But majority still consuming $2–$4 per day

– Growing middle class provides benefits• Large demand for consumer durables

• Encourages frugal innovation

• Promotes greater public accountability

– Middle class friendly policies needed• Stable economic growth

• Better jobs; advanced education and health care

4

Middle class grew rapidly in size and purchasing power

But distribution varies

5

Size of middle class in Indonesia1999 2009

6

0.01 0.09

0.04 0.36

1.14 6.36

13.1 24.4

120.6 49.8Poor(<=2)

Lower Middle(2 to 4)

Mid Middle(4 to 10)

Upper Middle(10 to 20)

Affluent(>=20)

130 100 50 0 50 70

Rural Urban

The Indonesian Middle Class (Millions)

0.05 0.32

0.23 2.0

3.98 18.3

25.5 43.3

89.1 47.1Poor(<=2)

Lower Middle(2 to 4)

Mid Middle(4 to 10)

Upper Middle(10 to 20)

Affluent(>=20)

100 50 0 50 100

Rural Urban

The Indonesian Middle Class (Millions)

Population distribution (%) by expenditure per person per day

(2005 $PPP) IndonesiaPer capita expenditure

National Urban Rural1999 2009 1999 2009 1999 2009

<$1.25 42.2 24.6 23.4 12.2 53.5 33.7$1.25-$2 32.8 32.4 32.4 25.5 32.9 37.5

$2-$4 20.1 30.9 33 40 12.4 24.3$4-$6 3.5 7.5 7.6 13.2 0.9 3.3

$6-$10 1.2 3.3 2.8 6.5 0.2 0.9$10-$20 0.3 1.1 0.6 2.2 0.0 0.3

>$20 0.0 0.2 0.1 0.3 0.0 0.1Total 100.0 100.0 100.0 100.0 100.0 100.0

$2-$20 25.0 42.7 44.0 62.0 13.6 28.7

7

8

Emerging consumers to assume key role in rebalancing

Source: Staff Estimates based on PovcalNet Database

Annual Expenditures of Middle and Upper Class 1990-2030

0

5000

10000

15000

20000

25000

30000

35000

Developing

Asia

Developing

Europe

Latin

America

and

Carribean

Middle East

and North

Africa

OECD Sub-

Saharan

Africa

An

nu

al

Ex

pen

dit

ures

(Bil

lio

n)

1990 2008 2030

Caribbean

9

Middle class more likely to hold stable jobs

Percentage share of regular/permanent wage employment

to total labor force of each economic group

0

10

20

30

40

50

60

70

80

< $1.25

(poor)

$1.25 - $2

(near

poor/vulnerable)

$2 - $4

(lower middle)

$4 - $10

(middle middle)

> $10

(upper middle &

rich)

% s

ha

re

India, 2004-05 Philippines, 2006 PRC, 2002

10

Middle class tend to invest more in education and health

Mean Percentage Share of Household Expenditures Spend on Education and Health

0

2

4

6

8

10

12

14

16

< $2

(poor)

$2 - $4

(lower middle)

$4 - $10

(middle middle)

$10 - $20

(upper middle)

> $20

(upper)

Class

% s

har

e

Bangladesh, 2000

Bhutan, 2003

Cambodia, 2003

China, People's Rep. of, 2002

India, 2004

Indonesia, 2002

Malaysia, 2004

Nepal, 2003

Pakistan, 2001

Philippines, 2003

Sri Lanka, 2002

Thailand, 2002

Mean Percentage Share of Household Expenditures Spent on Education and Health

11

Middle class demand more consumer durables

Household ownership of refrigerator

by per capita expenditure/income decile

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

D1 D2 D3 D4 D5 D6 D7 D8 D9 D10

Decile based on per capita expenditure

Perc

en

t

Philippines, 2006 India, 2004-2005 PRC, 2002

Household ownership of car

by per capita expenditure/income decile

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

D1 D2 D3 D4 D5 D6 D7 D8 D9 D10

Decile based on per capita expenditure

Perc

en

t

Philippines, 2006 India, 2004-2005 PRC, 2002

12

But the majority of middle class still in $2–$4 range, vulnerable

Percent Middle Class and AboveMost Recent Survey Year

0

10

20

30

40

50

60

70

80

90

100

AZER

BA

IJA

N

MA

LA

YSIA

TH

AIL

AN

D

KA

ZA

KH

STA

N

GEO

RG

IA

CH

INA

SRI L

AN

KA

AR

MEN

IA

PHIL

IPPIN

ES

VIE

TN

AM

MO

NG

OLIA

BH

UTA

N

KY

RG

YZ R

EPU

BLIC

IND

ON

ESIA

PAK

ISTA

N

CA

MBO

DIA

IND

IA

UZBEK

ISTA

N

LA

O P

DR

NEPA

L

BA

NG

LA

DESH

Per

cen

t

$2-4 (2005 PPP $) $4-10 (2005 PPP $) $10-20 (2005 PPP $) >$20 (2005 PPP $)

13

Middle class to increase burden on environment and health

14

Policies to nurture middle class

• Stable and sustained economic growth

• Stable, better-paying jobs

• Higher education

• Safety nets

• Conservation and public health policies

• Greater infrastructure development

15

Key messages

• Global crisis slowed growth in 2009, but impact less severe than anticipated

• Middle class rapidly expanding and key to rebalancing, but still vulnerable

• Growing middle class provides benefits

• Middle class friendly policies needed

16

Thank Youwww.adb.org/Documents/Books/Key_Indicators/2010